1984 (7) TMI 27 - HC - Income Tax

2004 (10) TMI 291 - AT

Issues Involved:
1. Jurisdiction and propriety of cancellation of registration for the assessment year 1966-67.
2. Jurisdiction and propriety of cancellation of continuation of registration for the assessment years 1967-68 to 1972-73.
3. Interpretation and application of Section 186 of the Income-tax Act, 1961.
4. Validity of the instrument of partnership involving a minor.

Analysis:

1. Jurisdiction and Propriety of Cancellation of Registration for the Assessment Year 1966-67:
The Income-tax Appellate Tribunal, Cochin Bench, referred the question of whether the cancellation of registration for the assessment year 1966-67 was without jurisdiction and improper. The assessee, a firm of seven partners, had applied for fresh registration for the assessment year 1966-67, which was granted by orders dated November 7, 1966. The ITO later initiated proceedings under Section 186 of the Income-tax Act, 1961, for cancellation of the registration on the ground that one of the partners, Cyriac, was a minor at the time of execution of the partnership instrument. The ITO cancelled the registration, holding that no genuine firm existed as the instrument showed a minor was made a full partner.

2. Jurisdiction and Propriety of Cancellation of Continuation of Registration for the Assessment Years 1967-68 to 1972-73:
For the assessment years 1967-68 to 1972-73, the assessee applied for continuation of registration, which was initially granted. However, the ITO cancelled the continuation of registration based on the same reasoning applied to the cancellation of the 1966-67 registration. The Tribunal, however, set aside the ITO's orders, accepting the assessee's contention that the registration was validly granted and should not have been cancelled.

3. Interpretation and Application of Section 186 of the Income-tax Act, 1961:
Section 186(1) empowers the ITO to cancel registration if he is of the opinion that no genuine firm existed during the previous year as registered. The section requires the ITO to give a reasonable opportunity of being heard to the firm and obtain the previous approval of the Inspecting Assistant Commissioner before cancellation. The court emphasized that the cancellation should be based on the existence of a genuine firm during the relevant previous year. The court found that the ITO's cancellation was not reasonably supported by any material warranting the exercise of power under Section 186.

4. Validity of the Instrument of Partnership Involving a Minor:
The court considered whether the instrument of partnership was invalid due to the inclusion of a minor as a full partner. It was established that Cyriac, though a minor at the time of execution of the deed on December 10, 1963, had attained majority on July 26, 1964, before the relevant previous year for the assessment year 1966-67. The court noted that the instrument was valid as Cyriac was a major during the relevant period, and the application for registration was signed by all partners, including Cyriac, indicating his acceptance of the partnership terms. The court concluded that the registration was validly granted and should be given effect in subsequent assessment years as long as the conditions under Section 184(7) were satisfied.

Conclusion:
The court answered the referred question in the affirmative, in favor of the assessee and against the Revenue. The orders of the ITO cancelling the registration were not reasonably supported by any material, and the partnership was validly registered. The court directed that a copy of the judgment be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, and that the parties bear their respective costs.

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